It is no coincidence, by the way, that its share in the European financial markets is growing. Thus, according to Insurance Europe, this insurance segment grew by 40% in 2017 in Belgium, in France - by 36.7%, in Belgium - by 21%. Unfortunately, there are no more up-to-date statistics available.
After a rapid growth, the investment insurance segment in Russia has moved into the correction phase: fees in the first quarter of 2019 have dropped by 5.5%, according to ARIA data. Will Unit linked in case it is implemented in the Russian market, become a new driver for the life insurance market? It is most likely yes. The product has a number of competitive advantages in the niche of tools for the mass investor.
The first advantage is the absolute transparency of investments and managerial commissions.
There is a complete segregation of customer assets from company assets in the classic Unit linked. The client’s assets are not on the insurer’s central asset register. The investor sees the change in his portfolio value in his account. An information disclosure is implemented differently in ILI. The rule for investment return obtaining is disclosed to the client, and he can track the progress of this investment condition in his personal account. Actual assets are on the insurer’s balance sheet, which can play both in favor of the client and insurer (for example, the insurer takes part of the investment risks, protecting the client from them and additionally making money on it).
The second advantage of Unit linked is a potentially higher return.
Other terms being equal, the client can count on additional 0.5–1 percent in comparison with ILI; this is because credit risk is redistributed to the client, capital protection obligations are secured by assets in the product, and the insurer is actually released from the obligation to guarantee this payment with its balance sheet. Thus, the insurer has fewer capital requirements, which means the fee for fund management can be reduced leading to profitability increase.
Unit linked is a mass product that often used as one of the saving tools for specific purposes in the West; it can be a major purchase, education, or retirement savings.
The legislative implementation of Unit linked has been discussed for several years. Not so long ago, the professional community, in accordance with the request of the regulator and the Ministry of Finance of the Russian Federation, extended the previously prepared concept of initiatives on Unit linked creation in Russian law. Perhaps, the current situation with ILI will push legislative changes that will bring the life insurance products to a whole new level.
Photos are from open sources.